Bahrain rolls out BHD 7 bn banking sector relief package

Another banking relief package lands in the GCC: Late to the party compared to its regional counterparts, the Central Bank of Bahrain (CBB) announced a BHD 7 bn stimulus package to boost lending liquidity and provide relief for borrowers and lenders.

The relief structure: Retail banks are set to have access to “unlimited [BHD] liquidity” from the CBB for six months against a collateral of BHD 7 bn. In turn, the banks will provide their business and household customers with the option to defer debt installments, including the principal and interest. Customers will be eligible for the relief for three months, and banks can defer payments on domestic loans worth up to BHD 11.3 bn.

The CBB is also slashing banks’ reserve requirements to 3.5% from 5% — and both the minimum liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) will be reduced to 80% from 100%.

Lending liquidity has been at the center of central banks’ responses to the war. The Central Bank of Kuwait made a similar move on LCR and the NSFR ratios two weeks ago, whereas other central banks in Jordan, the UAE, and Qatar introduced a range of measures aimed at boosting lending liquidity in their markets.

But why is Bahrain doing it now? It could be, as we’ve previously expected, that it needed an external backstop first to ease the pressure on its balance sheet. The UAE stepped in last week with a USD 5.4 bn lifeline in the form of a currency swap.

REMEMBER- Bahrain has been structurally far weaker than its neighbors before the war even started. It entered the crisis with a public debt rate of nearly 150% of GDP and a downgraded sovereign credit rating nearing junk territory as debt servicing costs rose to be among the highest globally at 34% of government revenue.

And now the country is bracing for a GDP slowdown as Hormuz closure and infrastructure attacks put a dent in its energy exports and industrial output. The World Bank now predicts the country’s economy to grow at just 1.3%, down from a previous January forecast of 3.1%. Bahrain’s GDP grew at 3.5% last year.